Finance Bill, 2022 proposed to amend section 80DD to provide that deduction will also be allowed where the scheme pays annuity or lump sum amount to the beneficiary who is a disabled dependant of the individual during the lifetime of the individual on attaining 60 years of age of the individual and the individual discontinues the payment of contribution or premium to the scheme.
Section 80DD allows a deduction to a resident individual for depositing an amount into an insurance scheme if the scheme pays an annuity or lump sum amount to the beneficiary who is a disabled dependant of the individual in the event of death of such individual.
No such deduction will be allowed if the scheme provides for payment of the annuity or lump sum amount to the beneficiary who is a disabled dependant of the individual during the lifetime of such individual.
While presenting the Union Budget 2022, Finance Minister Nirmala Sitaraman announced relaxation in tax relief to the person on payment of annuity by the insurance company to the disabled beneficiary during the lifetime of the proposer.
She stated that the parent or guardian of a differently-abled person could take an insurance scheme for such person. The present law provided for deduction to the parent or guardian only if the lump-sum payment or annuity was available to the differently-abled person on the death of the subscriber i.e. parent or guardian.
There could be situations where differently-abled dependants may need payment of annuity or lump sum amount even during the lifetime of their parents/guardians.
She proposed to allow the payment of annuity and lump sum amount to the differently-abled dependent during the lifetime of parents/guardians, i.e., on parents/ guardians attaining the age of sixty years.
For this purpose, Clause 21 of the Finance Bill, 2022 amends the existing provisions of section 80DD as follows-
Amendment of section 80DD.
21. In section 80DD of the Income-tax Act, with effect from the 1st day of April 2023,––
(I) in sub-section (2), for clause (a), the following clause shall be substituted, namely:–
“(a) the scheme referred to in clause (b) of sub-section (1) provides for payment of annuity or lump sum amount for the benefit of a dependant, being a person with disability,–
(i) in the event of the death of the individual or the member of the Hindu undivided family in whose name subscription to the scheme has been made; or
(ii) on attaining the age of sixty years or more by such individual or the member of the Hindu undivided family, and the payment or deposit to such scheme has been discontinued;”
Amended provisions explained
Clause 21 seeks to amend section 80DD of the Income-tax Act relating to deduction in respect of maintenance including medical treatment of a dependant who is a person with disability.
The provisions of the said section, inter alia, provide for a deduction to an individual or Hindu undivided family, who is a resident in India, in respect of expenditure incurred for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability; or amount paid to Life Insurance Company (LIC) or any other insurer or administrator or specified company, in respect of a scheme for the maintenance of a disabled dependant.
Sub-section (2) of the said section provides that deduction shall be allowed only if the payment of annuity or lump sum amount has been made for the benefit of the dependant, being a person with disability, in the event of the death of the individual or the member of the Hindu undivided family in whose name subscription to the scheme has been made and the assessee nominates either the dependant or any other person to receive the payment on his behalf for the benefit of the dependant, being a person with disability. Sub-section (3) of the said section provides that if the dependant with disability, predeceases the individual or the member of the Hindu undivided family, the amount deposited in such scheme shall be deemed to be the income of the assessee of the previous year in which such amount is received by the assessee and shall accordingly be chargeable to tax as the income of that previous year.
It is proposed to substitute clause (a) of sub-section (2) of the said section so as to provide that the deduction under clause (b) of sub-section (1) of the said section shall be allowed if the scheme provides for payment of annuity or lump sum amount for the benefit of a dependant, being a person with disability, in the event of the death of the individual or the member of the Hindu undivided family in whose name subscription to the scheme has been made; or on his attaining the age of sixty years or more or the member of the Hindu undivided family, and the payment or deposit to such scheme has been discontinued.
Further, it is proposed to insert a new sub-section (3A) to provide that the provisions of sub-section (3) shall not apply to the amount received by the dependant, being a person with disability, before his death, by way of annuity or lump sum by application of the condition referred to in the proposed sub-clause (ii) of clause (a) of sub-section (2).
These amendments will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
Existing Provisions of section 80DD: Before proposed amendments by Finance Bill 2022
The existing provision of section 80DD, inter alia, provide for a deduction to an individual or HUF, who is a resident in India, in respect of (a) expenditure for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability; or (b) amount paid to LIC or any other insurer or administrator or specified company in respect of a scheme for the maintenance of a disabled dependant.
2. Sub-section (2) of the aforesaid section provides that the deduction shall be allowed only if the payment of annuity or lump sum amount is made to the benefit of the dependant, in the event of the death of the individual or the member of the HUF in whose name subscription to the scheme has been made.
3. Sub-section (3) of the aforesaid section provides that if the dependant with disability, predeceases the individual or the member of the HUF, the amount deposited in such scheme shall be deemed to be the income of the assessee of the previous year in which such amount is received by the assessee and shall accordingly be chargeable to tax as the income of that previous year.
4. Sub-section (4) of the aforesaid section provides for furnishing a copy of the medical certificate in the prescribed form and manner (Refer Rule 11A), for claiming deduction under this section along with the return of income under section 139, in respect of the assessment year for which the deduction is claimed.
Section 80DD was introduced by the Finance Act, 1998 by replacing and merging the then section 80DD and section 80DDA.
It was felt that the parents or guardian of disabled dependants may not have to incur expenditure on medical treatment of a disabled dependant every year.
However, the parent or the guardian would always feel the need to provide for the future maintenance of the disabled dependant. In order to allow a choice to the parent or the guardian to spend either on the medical treatment of or for the future need of the disabled dependant, as the case may be, section 80DD was enacted. With this provision, the parent or the guardian could claim a deduction of Rs. 75,000 / Rs. 1,25,000 for the medical treatment and for future needs of the handicapped dependant in the manner most suited to his needs.
Finance Act, 1998 allowed the deduction upto Rs. 40,000 under section 80DD. Finance Act, 1999 amended the provisions of this section to provide for a flat deduction of Rs. 40,000 irrespective of actual expenditure. This has been done to remove the hardships of producing the actual evidence of expenditure. The memorandum of Finance Bill, 1999 states,” Reservations have been expressed that the provision in its present form may create difficulties for such assessees as it may lead to a situation where evidence for such expenditure may be insisted upon by the Assessing Officers. In order to mitigate any such hardship of the guardians of a handicapped person, it is proposed to allow a deduction of the amount of Rs.40,000/- in such cases.”
Illustration
The above amendment is explained with the help of the following example.
Mr Rakesh has two sons. One of his sons is suffering from a disability. If he incurs any expenditure on medical treatment for his disabled son, he will be eligible for claiming a deduction of Rs. 75,000 from his gross total income under section 80DD. The deduction amount will increase to Rs. 1,25,000 in case his son is suffering from severe disability.
Mr Rakesh will also get the deduction under section 80DD if he does not incur any expenditure on the medical treatment of his dependent disabled son. In this case, he has to deposit money in a fund or scheme/plan of LIC or other insurance companies.
In this scheme or plan, the proposer/insured person is Mr Rakesh himself and the beneficiary under the plan is his disabled son.
However, he will get a deduction u/s 80DD for depositing money in any scheme or plan if certain conditions are fulfilled.
These conditions are-
i) The scheme or plan provides for payment to the beneficiary (disabled son) only on the death of Mr Rakesh. The scheme may pay the amount in a lump sum or in the form of an annuity to the beneficiary i.e. disabled son after the death of Mr Rakesh.
ii) Mr Rakesh nominates his dependent disabled son to receive the benefits under his plan.
The first condition stipulates that the scheme/plan shall provide for payment of benefits to the beneficiary (disabled son) only in the event of death of the life insured (Mr Rakesh).
In case, the scheme provides for payment of benefits to the beneficiary (disabled son) during the lifetime of the insured (Mr Rakesh), then the contribution to such a scheme would not qualify for the deduction under section 80DD as it violates condition (i) mentioned above.
This type of plan/scheme does not have a maturity claim. The amount is payable to the dependant only on the demise of the proposer/life assured.
Because of this restriction, one has to face hardships. In case the individual is alive, the dependant doesn’t get the maturity benefit because this condition states that the scheme/plan must provide the annuity or lump sum amount only in case of the death of the individual. Accordingly, no benefit can be paid to dependant till the proposer/life assured survives.
The hardship surfaces when the individual remains alive and reaches the retirement age when it is not possible for him to continue to deposit in the scheme. At the same time, his earnings go down and require returns from the fund or investment. But since there was a condition of getting returns on the death of the individual only, the fund cannot pay during his lifetime as he is alive.
Thus when Mr Rakesh will attain the retirement age (assuming Mr Rakesh is a salaried individual), he will retire from the service and then the beneficiary needs money from the fund - either in lumpsum or in annuity for his livelihood as his father's earnings will go down in retired age. The beneficiary (disabled son) cannot receive any returns from the scheme as his father is alive and cannot receive any returns during the lifetime of his father irrespective of how much he is in need of money from the fund/scheme.
Hence the beneficiary faces undue hardships because of the ‘death’ condition of the insured.
This amendment aims to alienate this hardship. Thus it is proposed that the deduction under section 80DD will be available to Mr Rakesh even if the scheme/plan provides for payment of annuity or lumpsum during the lifetime of Mr Rakesh (i.e. when he is alive) to the beneficiary (disabled son of Mr Rakesh) when Mr Rakesh attains the age of 60 years and he stops contributing in the fund.
The proposed amendments to the provisions of Section 80DD now permit receipt of an annuity or lump sum payout during their lifetimes for an early withdrawal or withdrawal post attainment of a specified age to meet the expenses of the dependant.
Further, the maturity benefits so received during the lifetime of the dependant is proposed to be exempt in the hands of the insured.
Thus, any amount received by the disabled son of Mr Rakesh, when Mr Rakesh attains 60 years and he stops contribution and he is alive, shall remain exempt from tax in the hands of Mr Rakesh.
Stated Objectives in the Memorandum Explaining the Provisions of Finance Bill, 2022 for introducing the amendment in the statute
The Memorandum discuss the case of Ravi Agrawal vs. Union of India in Writ Petition No. 1107 of 2017 / (2019) 410 ITR 399 (SC) / 260 Taxman 352 (SC).
In this case, the petitioner approached Supreme Court and filed a writ petition filed as a Public Interest Litigation. The petition was stated to be filed in the interest of handicapped children whose parents had taken Jeevan Aadhar Policy (Table 114) from the LIC for the livelihood of their children. The petitioner himself was a differently-abled person as he was suffering from Cerebral Dysphagia. The petitioner also was an income tax assessee.
The petitioner submitted that denial of the benefit of the insurance to the handicapped persons to get annuity or lumpsum amount during the lifetime of the parent/guardian of such a handicapped person vis-a-vis the beneficiaries of other life insurance policy who are getting annuity during the lifetime of the person who has taken insurance policy, violates the fundamental right of equality of the handicapped person enshrined in Article 14 of the Constitution.
Prior to moving Supreme court, the petitioner had lodged a complaint before the Insurance Regulatory and Development Authority of India (IRDA) on August 06, 2014. However, the said Authority in its reply expressed its inability to provide any help.
The petitioner even approached the Court of the Chief Commissioner for Persons with Disabilities raising the aforesaid grievance. The Chief Commissioner heard the matter on various dates and passed the order advising the CBDT to once again examine the matter in consultation with the Department of Empowerment of Persons with Disabilities, Ministry of Social Justice and Empowerment, as well as National Trust
The Chief Commissioner had even sent reminder thereof to the CBDT to look into the matter. However, nothing moved at the level of the CBDT. In fact, the petitioner thereafter lodged his grievance with the Prime Minister’s Office through Centralised Public Grievance Redressal and Monitoring System Portal (CPGRAM) on October 15, 2015. As he did not receive any response, it provoked the petitioner to file the instant writ petition.
One of the prayers in the writ petition was to “Issue a writ of Mandamus or any other appropriate writ, order of direction to Respondents No 1 to amend Section 80DD of the Income Tax Act to allow for the payment of annuity or lump sum amount to a person with disability on attaining the age of 55/58 years by the guardian/parent of disabled person, in addition to in the event of death of the guardian/parent.”
Union of India submitted that section 80DD was specifically provided keeping in view the fact that the guardians of children with disability are always faced with the grim reality about the need for maintenance of the disabled after the death of the primary care giver, i.e. the parent or the guardian.
Many of them would like to deposit some amount during their lifetime in some special instrument which would ensure payment of a reasonable sum regularly to the disabled on their death.
Thus, a separate deduction from Gross Total Income of a specified amount deposited in a year in any scheme of LIC or any other insurer specifically framed for providing recurring or lump sum payment for the maintenance and upkeep of a handicapped dependant after the death of the assessee and approved by the CBDT in this behalf was incorporated in the statute.
As the scheme was designed to assuage the anxiety in the minds of parents/guardians of handicapped dependants about the destiny of their wards on their death and, therefore, to allow for annuity payments to the handicapped dependant under Jeevan Aadhar policy to commence after a certain age of the subscriber is not possible.
After hearing all the parties, the Hon’ble Supreme Court decided that Jeevan Aadhar Policy does not violate Article 14. The Bench further observed that considering the several difficult situations where the handicapped person may need the payment on annuity or lumpsum basis even during the life time of their parents/guardians, it is for the legislature to take care of theses aspects and to provide suitable provision by making necessary amendments in S.80DD.
Vide para 22 of the judgment dated 3rd January, 2019, the Hon’ble Supreme Court observed as follows-
22) The petitioner may be justified in pointing out that there could be harsh cases where handicapped persons may need the payment on annuity or lumpsum basis even during the lifetime of their parents/guardians. For example, where guardian has become very old but is still alive, though he is not able to earn any longer or he may be a person who was in service and has retired from the said service and is not having any source of income. In such cases, it may be difficult for such a parent/guardian to take care of the medical needs of his/her disabled child. Even when he/she has paid full premium, the handicapped person is not able to receive any annuity only because the parent/guardian of such handicapped person is still alive. There may be many other such situations. However, it is for the Legislature to take care of these aspects and to provide suitable provision by making necessary amendments in Section 80DD of the Act. In fact, the Chief Commissioner for Persons with Disabilities has also felt that like other police holders, Jeevan Aadhar policy should also be allowed to mature after 55 years of age of the proposer and the annuity amount should be disbursed through the LLCs or National Trust.
It should be noted that Supreme Court is not vested with the power to direct the Parliament to amend the law or create some legal provision, to a specified effect. The mandate of amending certain beneficial provisions under the Act vests with the Legislature only & the Apex Court can only persuade the legislature to extend the benefit embedded in such provisions, to a certain class of persons.
After this observation from the Supreme Court in 2019, the government took three years to amend the law.
The memorandum further states that in order to remove this genuine hardship, it was proposed to allow the deduction under the said section also during the lifetime, i.e., upon attaining age of sixty years or more of the individual or the member of the HUF in whose name subscription to the scheme has been made and where payment or deposit has been discontinued.
Further, it is proposed that the provisions of sub-section (3) shall not apply to the amount received by the dependant, before his death, by way of annuity or lump sum by application of the condition referred to in the proposed amendment.
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1 Comments
Whether the ammendment is applicable to earlier policy holder. The issue was discussed with LIC they are of the opinion that this for new policy only. Pls clarify the issue
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